Brazil is the fifth largest country by area in the world and the second most populous in the Americas behind the United States, boasting a population of more than 200 million people. This population is largely middle class and based in urban environments, which creates a consistent demand for new goods and services, despite Brazil’s roller coaster economy, high regulations, seemingly endless political scandals, high taxes, and notoriously difficult business climate.
As one of the most challenging places to do business in the world, operating a business in Brazil is no easy feat. But for companies that do take the leap, capturing a piece of this incredibly large and tech-savvy consumer base can be the ultimate prize for anyone doing business in Latin America. There are many opportunities for entrepreneurs and investors to generate Silicon Valley style returns for those who enjoy take risks and are willing to slog through Brazil’s ecosystem.
Here’s an overview of the current opportunities and challenges of doing business in Brazil today.
A Brief History
Brazil is the largest economy in Latin America and a key gateway for doing business in its neighboring countries. It is the world’s 4th largest democracy and boasts an abundance of diverse wildlife and natural resources. Brazil borders more countries than any other in South America, and its extensive coastline covers 7,491 kilometers. In fact, the largest port on the entire continent is located in São Paulo, and it is the main point of access for most imports from Europe. Other ports like Paranagua and Vitoria are important and boast tax incentives for businesses.
The economy of Brazil is one of constant booms and busts. Just 25 years ago, 66% of Brazil’s rural population and 38% of its urban residents lived below the poverty line. The primary cause of this was government mismanagement. During this time, excessive borrowing and spending and high inflation, coupled with over-reliance on volatile export markets, caused Brazil to stumble every time the rest of the world changed its purchasing habits.
But throughout the 20th century, Brazil thrived on gold, coffee, rubber, and soybean production and did so while under governments that continued to borrow extensively and devalue the currency to encourage foreign trade. This generated double-digit GDP growth up until the 1970s, where Brazil’s heavy industrialization peaked. Unfortunately, around 1981 the country entered the worst recession in Brazil’s modern history, known as the “Lost Decade.” This recession was eclipsed by the current recession and economic instability that Brazil has been going through since the commodities bust.
Brazil re-emerged on the global scene in the 1990s with the introduction of the Real Plan, a series of policies that introduced a new currency, the real, and other measures to combat the country’s rampant hyperinflation. By the 2000s, Brazil experienced another boom for its commodities like cotton, coffee, beef, sugar cane, and ethanol, iron ore, soybeans, corn, woodpulp and steel which continue to be the primary drivers of economic growth today.
Brazil is now one of the largest agricultural producers and exporters in the world. Investments in the country’s sizable oil deposits are also responsible for nearly 20% of the country’s economy. During the 2000s, nearly 30 million Brazilians left poverty. This change was strongly driven by President Lula’s policies promoting social inclusion from 2002 – 2010. This was also before he was sentenced to nearly ten years in jail for, of course, corruption.
A number of other things brought Brazil to the world stage throughout the 2000s. For instance, the country won the bid to host the 2014 World Cup and 2016 Olympics, further driving infrastructure investments and tourism, although not without massive corruption and cost overruns. However, Brazil still couldn’t escape the effects of the U.S. financial crisis in 2008. Furthermore, corruption and scandals, mostly surrounding Brazil’s national oil company Petrobras, have dominated the headlines since 2008 and economic recovery is still a slowly ongoing process.
And yet despite the ongoing corruption scandals and economic uncertainties, there seems to be an optimism about the country that exists and persists regardless of what happens. Another take on Brazil’s corruption holds that it’s nearly impossible to tell if Brazil is more or less corrupt compared to other emerging markets like China, Russia, Indonesia and others, but that Brazil’s corruption stands out because its institutions are fighting it, rather than becoming part of the political process. Some believe this difference could be a turning point for Brazil going forward.
Brazil boasts a number of exciting untapped opportunities, so if you’re thinking about doing business in the country, or just interested in learning more about these opportunities, here are a few things to keep in mind.
For foreign investors, one of the most exciting opportunities in Brazil is the Brazilian Investor Visa Program. It allows anyone in partnership with a Brazilian company, as well as anyone interested in investing in an Internet-based business, real estate, or interested in purchasing a government bond, the opportunity to gain permanent residence.
Once the visa is granted, which is a relatively easy process, investors can easily travel throughout the rest of South America and even gain full Brazilian citizenship after four years of residency. Other benefits of the investor visa include the ability to live and work in Brazil for both the individual and their family, access to the same rights and benefits as a Brazilian citizen, and no restrictions on the amount of time one must remain in Brazil for these residency benefits.
For those in the e-commerce space, Brazilians spend a considerable amount of time online, which presents some exciting opportunities for companies in this rapidly developing market. Brazilians spend roughly 32-38 hours per month online, and more time on social media than anyone else in the world. 37% of Brazil’s online consumers are over the age of 35, which provides unique opportunities for retailers interested in reaching an older demographic online. A majority of Brazilians are also accessing the Internet through their smartphones, driving innovative opportunities for mobile-friendly shopping and online payment solutions.
For a quick and low-cost route into the Brazilian market, retailers should consider setting up on MercadoLivre, the “eBay” of Latin America, or Dafiti.com, Brazil’s most popular marketplace for clothing, accessories, beauty products, and housewares. Dafiti.com receives over 50 million visits per month. While setting up on a marketplace comes with its own challenges, such as registering and handling the logistics of delivering the goods, these websites can be a much easier way to navigate and test the Brazilian market before expanding in the country.
If you plan to sell and ship directly to Brazilian consumers from abroad, you are not required to register a local company in Brazil. However, you will need to consider how you will clear customs and take care of any duties involved with importing your goods from abroad. Currently, customs duty is around 10.73%, and import duties can range from 10% to 35%.
If you plan to establish a local Brazilian website (with a .com.br domain) or sell on a Brazilian marketplace, you will need to register as a local company in Brazil. In that case, working with a local representative to help you incorporate your entity and operate in Brazil is strongly recommended because of the complexity of local operational and potential political challenges. Be careful to fully vet your local partners, as I’ve seen cases of local partners taking advantage of naive foreign investors.
The Startup Ecosystem
It wasn’t too long ago that Brazilian startups had little to no access to financing for their ventures. However, new government initiatives and a growing interest from foreign investors are steadily building momentum for the country’s entrepreneurial ecosystem.
São Paulo is Brazil’s largest city and the hub of the country’s startup activity. Companies like VivaReal (a real estate marketplace), Dafiti (an e-commerce marketplace), and Kekanto (a social network for recommendations), are based in the city. The largest banks have also set up entire divisions devoted to fueling São Paulo’s thriving fintech sector.
Coworking spaces like plug.co, CUBO, and Impact Hub are easy to access. There’s also no shortage of accelerator programs and investment firms helping Brazilian startups launch and grow their companies. Monashees, Kaszek Ventures, Associação Brasileira de Private Equity & Venture Capital (ABVCAP), Instituto Inovação, Ideiasnet, Confrapar, Warehouse Investimentos, and Astella Investimentos are just a few of the most notable investment firms. International players, like Microsoft and Visa, have also set up shop in Brazil to help fill the gap between early capital and larger rounds.
Brazilian startups are making a lot of noise. Here are just a few of the companies providing innovative solutions for problems in Brazil and around the world:
- Netshoes – Online sporting goods retailer that recently went public on the NYSE
- Nubank – Provider of financial services in Brazil, $173M investment.
- CargoX – On-demand trucking/freight broker (Founder Federico Vega Podcast Interview)
- Quero Quitar! – Platform to negotiate and pay debt and improve credit scores
- GuiaBolso – Brazil’s leading personal finance platform with more than 2.5 million users
- DogHero – Pet-sitting marketplace
- Movile – Internet services conglomerate, $200M investment
- 99 – Uber for Brazil, $240M investment
- Loggi – Logistics startup – $14M raised
Brazil can be a complicated, but rewarding location for anyone up to the challenge. As Carl Farrell, Chief Revenue Officer at data analytics powerhouse SAS, puts it, “Brazil is very resilient, it will weather the crisis and continue to prosper — it’s an economy that’s got lots of resources, people, and all the geographic connections that it needs.”